View the full post at: Sweden and the Euro: Logos-driven People vs. Pathos-driven Establishment

View the full post at: The Chronic Crisis That Is The Euro

Perhaps more importantly, Draghi has left the door open to further monetary easing and perhaps taking the ECB deposit

View the full post at: How’s that Euro Thingy Working Out?

View the full post at: Did the Euro Kill Governance in the Periphery?

View the full post at: The Euro: a Step Toward the Gold Standard?

Blanchard showed further concerns regarding the economic slowdown in the eurozone, saying, “Europe should do everything it can to strengthen private demand. What this means is aggressive monetary policy and what this means is getting the financial system stronger…” (Source: Ibid.) In other words, print more paper money.

Greece, Spain, Italy, and Portugal are facing a staggering economic slowdown and are dragging the stronger eurozone nations down with them. The countries that were supposedly “immune” to the debt crisis in the region are now feeling the pressures.

Germany, the strongest nation in the eurozone and the fourth-largest economy in the world, is having troubles; demand is falling. German car sales plummeted 13% in the first quarter of 2013. (Source: Financial Times, April 17, 2013.) The Bundesbank, Germany’s central bank, expects the country’s gross domestic product (GDP) to increase by only 0.5% in 2013. (Source: MNI News, April 16, 2013.) But being so early in the year, this 0.5% GDP growth can easily turn into a 0.5% contraction, considering the problems in the eurozone.

As I have been writing since the beginning of 2012, the economic slowdown in the eurozone will spread to other parts of the world, rather than it being contained.

The events in Cyprus sent a significant amount of fear into the global economy. And the crisis there still isn’t over. The country is being forced to sell its gold to pay for the expenses.

Next on the “hit list” is the tiny eurozone country of Slovenia.

The Organization for Economic Cooperation and Development (OECD) has reported that bad loans on the books of Slovenia’s banks account for about one-fifth of the country’s GDP! (Source: New York Times, April 9, 2013.)

The economic slowdown in the eurozone is troublesome for the global economy, especially the U.S. economy. About 40% of the companies on the S&P 500 stock index derive sales from the eurozone—they have to be feeling the pressure.

Michael’s Personal Notes:

According to CoreLogic, there were 54,000 foreclosures in the U.S. housing market in February. At the same time, and what is still even more worrisome, is the fact that there were 1.2 million homes in the foreclosure inventory. (Source: CoreLogic, March 28, 2013.)

The top-five states with the highest level of foreclosure inventory to mortgaged homes are Florida with 9.9%, New Jersey with 7.2%, New York with 5.0%, Nevada with 4.6%, and Illinois ... Read More

View the full post at: When Can We All Admit the Euro is an Economic Failure?

The U.S. stock market needs to correct, but the sovereign debt crisis in Europe and the euro currency together remain a festering powder keg.

The real problem for the euro is the lack of leadership—in banking and politics—in the region. There is no flexibility in the euro currency to help those countries in need.

The failure of decisive action in the eurozone is pronounced, but it is too difficult. There is no unified political, financial, or regulatory leadership. So how can the euro work?

No situation is the same, but Sweden experienced a real estate crash and credit crunch in the early 1990s—the worst since the 1930s.

According to Bo Lundgren, known as Sweden’s “Mr. Fix-It,” here’s what Sweden did after a period of financial disbelief:

1. Sweden unified politically.

2. The government immediately guaranteed all cash deposits at all banks. Two banks (out of more than 100) were nationalized, and they had to give common stock to the government, which was later sold.

3. There was restructuring, the closure of tax loopholes, spending austerity, and a currency devaluation of 25%.

Currency devaluation is the very thing that struggling eurozone countries cannot do. The “Swedish Solution” was not perfect, but at the very least, it was decisive action. After several tough years, Sweden was back on the growth path.

Getting in front of sovereign debt is now critical.

Every quarter or so, there’s a shock in capital markets regarding the sovereign debt and banking crises in the eurozone. Then there are patchwork remedies and more sovereign debt.

Today, finance ministers from the G8 (Germany, France, Italy, United Kingdom, Russia, Japan, Canada, and the United States) are meeting in London.

In their last gathering (for which I am certain the lunch menu was exquisite), the group agreed not to engage in currency wars and to be cautious on sovereign debt. Shortly thereafter, Japan began a new policy to weaken the yen and, subsequently, a massive amount of new monetary stimulus.

The wealthiest euro countries now have less desire for bailouts and sovereign debt. The latest result of badly managed euro banks and the lack of power for currency devaluation is deposit confiscation.

But the cameras shouldn’t be on the lineups; they should be focused on the bankers and politicians who allowed this to happen in the first place. One euro is no longer worth the same in all member countries now. (See “Currency Wars: Where Investors Are Vulnerable.”)

Sovereign debt and poor fiscal management everywhere are coming to a head. And interest rates are at record lows.

Policymakers are not doing enough to ... Read More

The Netherlands, the fifth-biggest nation in the eurozone, is the new victim. The country, once looked upon as one of the strongest in the eurozone, is experiencing a collapse in its real estate market.

The Dutch economy has the most debt amongst its eurozone peers—banks have 650 billion euros worth of mortgage loans on their books, while consumer debt has hit an alarming 250% of income. (Source: Spiegel, March 4, 2013.) To give you some idea of the magnitude of that consumer debt level, in Spain, the ratio of debt-to-income reached 125% in 2011, the year Spain started to really have financial problems.

The official unemployment rate in the Netherlands just hit 7.7%, and 755 companies in the country declared bankruptcy in February—the highest monthly number of bankruptcies since 1981! The CPB Netherlands Bureau for Economic Policy Analysis now expects a decline of 0.5% in the country’s gross domestic product (GDP) this year.

We already know Greece is in a state of depression, and the economic slowdown in Spain, Italy, and Portugal is accelerating.

France, the second-biggest economic hub in the eurozone, is facing a staggering unemployment rate above 10%.

Similarly, Germany, the largest economy in the eurozone, is experiencing an economic slowdown, as well. The Markit Eurozone Composite Purchasing Managers’ Index (PMI) reports Germany’s all-sector output fell in March for the 19th consecutive month and March saw the largest drop in orders in three months. (Source: Markit, April 4, 2013.)

As I have been writing in these pages for months, the economic difficulties facing the weaker eurozone countries will spread to the stronger countries in that region. The once-stable Netherlands is the first such casualty.

Regardless of the European Central Bank’s (ECB) recent statements to the contrary, the economic slowdown in the eurozone region will intensify. This means the eurozone’s economic problems will continue to send ripple effects into the global economy, eventually reaching U.S. shores.

Where the Market Stands; Where It’s Headed:

We’re dealing with a stock market propped up by artificially low interest rates and paper money printing at the rate of $85.0 billion a month. The market’s “time” is limited. From my analysis, indicators are pointing to a deteriorating stock market advance.

What He Said:

“When property prices start coming down in North America, it won’t be a pretty sight because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get ... Read More

The Bureau of Labor Statistics says inflation in the U.S. economy has caused prices to increase by only 12% since 2007—what $1.00 could buy in 2007 costs $1.12 today. (Source: Bureau of Labor Statistics web site, last accessed April 5, 2013.) As my readers know, I believe these inflation numbers are materially understated.

In February, the U.S. Producer Price Index (PPI), what many economists consider to be an early signal of where inflation might be headed, posted the highest month-over-month rate of change since October 2012. The PPI rose 0.7% in February from January. (Bureau of Labor Statistics, last accessed April 5, 2013.) Using February’s number as a base, the PPI is rising at an annual rate of 8.4%.

Corn futures at the beginning of 2007 were priced around $350.00 per lot. Now the same future costs $630.00 each—an increase of 80% in the last five years. As corn is an ingredient in a significant number of different foods, general food prices have also increased.

But despite the inflation we are experiencing, Americans’ wages aren’t rising. In the first quarter of 2007, the average hourly earnings of all private-sector employees in the U.S. economy was $20.70 per hour. In the first quarter of 2013, it increased to $23.80 an hour—a six-year increase of less than 15% (source: Federal Reserve Bank of St. Louis web site, last accessed April 5, 2013); not enough to keep up with inflation.

Adding more to the problem, the Federal Reserve is still issuing new money at the rate of $85.0 billion a month, while the U.S. government spends about $1.0 trillion a year more than what it takes in. The more paper money printed, the more the government goes into debt, the more long-term damage there is to the U.S. dollar and the buying power of the greenback.

Dear reader, with inflation increasing and real wages falling, you can see why it’s very difficult for the U.S. economy to get any traction. By looking at the optimism of stock advisors and rising key stock indices, one would think all is well with consumer confidence and consumer spending—but the reality is the exact opposite. Economic growth occurs when the standard of living improves; unfortunately, right now that standard is deteriorating in America.

Michael’s Personal Notes:

Mark my words: the eurozone’s economic problems are here to stay, and the economic slowdown in the common currency region will get worse as we move forward.

The Netherlands, the fifth-biggest nation in the eurozone, is ... Read More

Last Thursday, when the banks in Cyprus opened and all the media and headlines were doom and gloom, the stock market closed at a record high. Hey, I’m not saying that the problems in Europe are no big deal, but c’mon. Fear and panic—the combination works every time.

Cyprus is a tax haven. It took in billions and invested in Greek bonds. Now it has to pay. Governments have seized deposits before, and they will do so again. There’s way more to this story than what meets the eye: Russia.

I don’t know what’s going to happen, but corporations are fairly priced and Wall Street is buying this stock market. If the euro currency is going to crash, it’s going to crash. Don’t put your money there. Keep it in U.S. blue chips, cash, select real estate, and gold. Johnson and Johnson’s (NYSE/JNJ) dividend is safer than a bank anyhow.

When I was in Amsterdam, the “Occupy Wall Street” love-in was going on. Like Wall Street, it was one big party—a good one too. This guy on a street corner was holding a sign that said, “Say no to growth.”

But the problem is the alternatives. Socialism? Europe proves it doesn’t work, because it’s totally broke. Communism? Equal misery for all. I’d rather have the stock market at record highs and the Fed helping Wall Street over the alternatives. I know it’s not perfect, but perfection is for the afterlife. (See “Breakouts All Around; Final Countdown or the Beginning of a New Cycle?”)

Would some politician, any one, anywhere, stand up and make a tough choice? I am sick and tired of this ongoing uncertainty. If Cyprus, Greece, Spain, or Italy are going to fall, then let’s get it over with. Take the pain (I’ll send a donation), and get things moving forward.

The euro currency really consists of Germany, France, Holland, Belgium, Austria, and Finland. Let the ones behind the eight-ball drop out. They can rejoin later.

It wouldn’t surprise me at all if some players on Wall Street are financing a big trade on this. The euro currency has been declining for years. It might come apart. But life must go on.

Right now, the stock market is still looking pretty good. Wall Street and institutional investors are buying this stock market. The Fed wants you to buy this stock market. Big U.S. banks don’t care, because they don’t have to.

Wall Street ... Read More

View the full post at: Euro: Requiem or Renewal?

View the full post at: Is The Euro Broken?

I visited Europe and Holland, specifically, in 2011 to visit my great-uncle’s war grave at the Begraafplaats Crooswijk cemetery in Rotterdam. It is a strikingly beautiful cemetery. The Dutch do a masterful job of maintaining war graves. Thank you.

My trip was subsidized by an old college buddy who has a huge (for Europe) apartment in Amsterdam. It’s the best location in town. In his job, he is the second-most powerful person on ING Group’s trading floor. He is the information technology (IT) guy.

Amsterdam is one of the most unique cities I’ve ever been to (ahem, not for those reasons). It is one of Europe’s top destinations (perhaps for those reasons).It boasts stunning architecture and is home to the world’s oldest stock exchange. The NYSE Euronext N.V. is Amsterdam’s stock exchange today.

Amsterdam was the financial center of the world a long time ago, centuries before the euro. Apparently, the Dutch East India Company was the first multinational corporation and the Bank of Amsterdam was the first central bank. It financed the company in guilders, which eventually joined in creating the euro currency. The city is still a financial center in Europe, but history keeps repeating itself.

Like many banks in Europe, ING Group got itself into trouble during the financial crisis, and it received a 10-billion-euro bailout to bring up its capital reserves. The company has been shedding assets as part of its bailout terms. It plummeted on the stock market and is still way down. (See “The Fed’s Running the Show and Risk Keeps Going Up.”)

The euro is the second-largest reserve currency and the second-most traded. The euro has been under pressure since 2008, and the stability of the euro currency is the single greatest financial risk to your portfolio this year.

Rotterdam looks out of place in Europe. The city was leveled by the Germans in World War II and had to be rebuilt from scratch. Taking the train there, no one came around to check tickets. I guess people travel on the honor system.

My great-uncle was Flight Sergeant Charles P. Miller, an air gunner whose bomber was shot down in WWII. He was 27. Along with the crew, he and fellow air gunner, Flight Sergeant C.M. MacDonald, 25, crashed into the ocean ... Read More